Forex is considered to be the largest financial market in the world. However, until recently it was unfamiliar to retailer traders. Before having an internet connection became commonplace, the only people who traded FX were large financial organizations, hedge funds and corporations.
Why is Forex Different From Other Markets?
Unlike other trading options, Forex does not have a central governing body. Members trade with one another based on credit agreements. When push comes to shove, the most liquid market in the globe relies on not much more than a metaphorical handshake. Listed below are a few other ways in which Forex trading is different from stocks, futures and options.
- There is no uptick rule.
- There are no limits on the size of the trader’s position.
- Insider trading does not exist in the Forex market.
Understanding Common Forex Ideas
The following is a list of forex ideas that new traders must become familiar with:
- FX firms are called “dealers” not “brokers”. Unlike a broker, a dealer assumes market risk by being a counterparty to a trade.
- FX does not have commission. Instead, dealers make their money through bid-ask spreads.
- In the FX market, currencies always trade in pairs. The terms “short” and “long” are commonly used in this scenario.
How to Trade Forex
Trading Forex is a lot more difficult than it may seem. Beginner traders lose thousands of dollars because they are unaccustomed to the trading process. For this reason, newbie traders should learn all that they can about the FX market.
The simplest way to do this is to sign up for a Forex trading platform and read the manual guide. Most FX websites call themselves “brokers”.
These sites have software that traders can use to practice trading. This software emulates the FX market in real-time. In short, users can hone their skills on a fake (albeit realistic) marketplace with “paper money”.
Most newbie traders use this software for at least 6 months before they start trading real cash. For many people, this will sound like an excessively long time to go without making any real trades.
Unfortunately, people tend to lose money when they do not know the FX market inside and out. Investors can save themselves a lot of trouble by spending time on practice software. Doing this will lessen the odds of making mistakes simply because the investor did not know how to place good trades.
The FX market is a great investment. Many people around the world have made their fortune on Forex. That being said, FX is not for everybody. High returns means high risks. People who are not prepared to lose their investment may be better off with low risk investment options such as bonds, savings accounts and retirement plans.